Growth in disposable incomes slows

Sluggish economic growth and economic shocks including the financial crisis and the pandemic mean increases in disposable incomes have been ‘slowing to a crawl’ since 2010, according to the Resolution Foundation.

The think-tank says typical household incomes have risen by just £140 a year, with an increase of just 7% over the last 14 years. By contrast, disposable incomes rose by 38% in the 14 years up to 2010

The report notes that three economic shocks in a little over a decade – the financial crisis, Covid-19 and double-digit inflation – and little catch-up growth in between, have resulted in disposable income growth slowing to a crawl. Since 2009-10, incomes have grown by just 0.5 per cent a year on average, or 7 per cent over the whole 14-year period. Income growth over the 14 years prior to 2009-10 was more than five times as strong, at 38 per cent.

While the economic shocks that have driven this slowdown have been felt across many countries, the UK’s record since the financial crisis has been comparatively poor.

Separate Eurostat data covering the period 2007 to 2022 suggests that the UK experienced slower income growth than the Netherlands, France and Germany (but stronger growth than Italy), having outperformed these countries in the early to mid-2000s. Had the UK replicated the income growth of these three countries over this period, the typical family in Britain today would have been £2,700 a year richer by 2022-23.

The reporrt shows that amid this period of living standards stagnation across Britain, poorer households have enjoyed the strongest income growth.

Between 2009-10 and 2023-24, the poorest fifth of households saw their incomes grow by 13 per cent, compared to 7 per cent for typical households, and 2 per cent among the richest fifth of families. This surprisingly strong income growth at the bottom is partly explained by the one-off cost-of-living payments last year. But even excluding these temporary payments, the poorest fifth of households still saw their incomes grow by 7 per cent.

The Foundation notes that this progressive income growth has been driven primarily by the UK’s strong employment performance – particularly compared to 2009-10’s high unemployment rate. Increases in pre-tax employment income alone were equivalent to a 20 per cent income boost among the poorest 30 per cent of the working-age population.

This employment boost for poorer households has been significantly offset by the regressive impact of tax and benefit policy decisions taken since 2010, which have reduced the incomes of the poorest fifth of households by £1,900 (or 10 per cent), on average.

Britain’s great living standards slowdown has also resulted in slower progress on reducing poverty levels. Over the past 14 years, absolute poverty (where the poverty line is fixed in real terms) has fallen by 3.6 percentage points, lifting 1.3 million people out of poverty. But in the 13 years prior to 2010, absolute poverty (using a 1997-98 based absolute poverty threshold) fell 14 percentage points, lifting 7 million people out of poverty.

Relative poverty levels have been broadly stable between 2009-10 and 2023-24. However, the make-up of this group has changed significantly – the number of children in large families living in poverty has risen by 840,000, while it has fallen by 270,000 and 120,000 among families with one or two children respectively.

The Foundation says that Britain’s great living standards slowdown has reshaped Britain, leaving it falling behind its peers, and that re-starting the level of income growth families enjoyed before the financial crisis is the ultimate test by which the next parliament should be judged.

Lalitha Try, Economist at the Resolution Foundation, said “Britain is finally emerging from the cost-of-living crisis. But the bigger backdrop is a living standards slowdown that has left typical household incomes growing by just £140 a year since 2010. While global economic shocks have been a major factor, Britain’s recent record is poor compared to both its own history and many of our European neighbours.

“What little income growth Britain has experienced over the past 14 years has been driven primarily by rising employment, which has benefitted poorer households the most. Britain will need to reverse its dire record on productivity growth, and repeat its 2010s success on jobs growth, if the country is to enjoy a long overdue return to rising living standards over the next parliament.”


Source: Credit Connect

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